SEFULUTASI SULUAI as beneficiary of SIPU SULUAI,v.NATIONAL WESTERN LIFE INSURANCE COMPANY 1

SEFULUTASI SULUAI as beneficiary of SIPU SULUAI,
Plaintiff,
v.
NATIONAL WESTERN LIFE INSURANCE COMPANY,
Defendant.
High Court of American Samoa
Trial Division
CA No. 134-00
May 10, 2002

 

[1] “Misrepresentation” in the insurance context is a 1) statement or
representation by omission, made by an insured, that is untrue; 2) is
either made with intent to deceive or without knowing it to be true; 3)
that misleads or has tendency to mislead by causing reliance by insurer;
and 4) is material to the insured risk.
[2] Decedent’s representation of good health was misrepresentation
when decedent knew he was afflicted with diabetes for five years
preceding application for insurance and was fully aware of condition at
time of his application.
[3] Untrue statement regarding matter materially affecting health of

applicant for life insurance, made by one who knows statement is untrue,
allows insurer to avoid policy.
[4] If misrepresentation causes insurer to assume risk it otherwise would
not have taken, or would not have taken at rate of premium charged,
there is legal ground for avoidance.
[5] Where insurance contract was initiated, signed, and enforceable in
American Samoa, where insured lived in American Samoa, where claim
originated in American Samoa, and where plaintiff sought to collect on
claim in American Samoa, law of American Samoa law controlled the
rights and duties of the parties.
Before KRUSE, Chief Justice, LOGOAI, Associate Judge, and
SAGAPOLUTELE, Associate Judge.
Counsel: For Plaintiff, Paul F. Miller
For Defendant, Roy J.D. Hall, Jr.
OPINION AND ORDER
Sipu Suluai (“Sipu” or “decedent”), deceased, and his wife Sefulutasi
Suluai (“Sefulutasi” or “plaintiff”) applied for life insurance from the
defendant National Western Life Insurance Co. (“NWL”), a corporation
with headquarters in Texas. Sipu and Sefulutasi were initially
interviewed on July 7, 1997, by NWL’s American Samoa agent Afa
Roberts (“Roberts”). Based on answers given by Sipu and Sefulutasi at
these interviews, Roberts filled out an application form, a NWL standard
form document, which sought, among other things, certain information
on each applicant’s medical history. This form required applicants to
indicate whether they had been treated for any of a variety of illnesses
over the previous five years. NWL delivered a policy on December 15,
1997, on Sipu’s life designating plaintiff as the primary beneficiary.
Plaintiff’s application, on the other hand, was denied. Sipu died nine
months after, on September 26, 1998, within the policy’s “contestability
clause” period of two years.
Testimony at trial and a series of letters and faxes exchanged between
the parties illuminate how this case developed. On September 8, 1999,
plaintiff filed a claim with NWL, enclosing copies of the decedent’s
death certificate and insurance policy, demanding the face amount of the
policy, $50,000. On September 16, 1999, NWL wrote back requesting
additional documents to process the claim, including copies of all
medical records from July 1992 until the date of death. NWL pointed
out that death had occurred within the contestable period. On October

14, 1999, plaintiff’s counsel responded and advised, among other things,
that he was attempting to locate the decedent’s medical records, and that
the documents would be forwarded immediately upon receipt. On
October 26, 1999, NWL requested the decedent’s medical records
directly from LBJ Medical Center. On December 3, 1999, plaintiff’s
counsel wrote NWL that he had tried unsuccessfully to verify that the
medical records were sent, and asked NWL if it had yet received the
records. He then raised the suggestion that the records were unnecessary
for NWL to process the claim because in his opinion the medical
problems admitted on the insurance application were the same problems
resulting in the death of the decedent.
NWL’s December 13, 1999, response indicates where the working
relationship between the parties was clearly taking a turn for the worse.
In this response, NWL mentioned that plaintiff’s counsel had recently
told one of NWL’s staff members that the medical records were either
lost or destroyed, but that LBJ had not confirmed this. NWL also
informed plaintiff’s counsel that it was plaintiff, and not the decedent,
who had indicated she had diabetes at the time of the application. Once
again, NWL then stated it needed the decedent’s medical records before
the claim could be further processed.
On March 29, 2000, NWL, citing a lack of communication from
plaintiff, offered to refund the premiums paid on the policy. On April
10, plaintiff’s counsel responded by citing Texas Insurance Code § 21.21
and asking for payment of the policy in full. No mention was made of
the medical records. On April 12, NWL raised their position that the
Texas Insurance Code requires an insurer to reject or accept a claim
within fifteen business days after the date the insurer receives all forms
and documents necessary to secure proof of loss—not simply within
fifteen days of the filed claim. NWL also indicated that according to
decedent’s employer, he had been treated at LBJ prior to the issue date
of the policy. Again, NWL requested that the medical records be
provided if located.
Discussion
It is NWL’s theory that the decedent committed a misrepresentation by
failing to notify NWL, at the time of application, of what should have
been recognized as a major medical condition. Such a misrepresentation
would absolve NWL of liability under the insurance contract. See, e.g.,
Skinner v. Aetna Life and Cas., 804 F.2d 148, 149 (D.C. Cir. 1986).
A. Misrepresentation

[1] A “misrepresentation” in insurance is 1) a statement or representation
by omission, made by the insured, that is untrue; 2) that is either made
with the intent to deceive or made without knowing it to be true; 3) that
misleads or has a tendency to mislead by causing reliance by the insurer;
and 4) that is material to the risk insured. See Mut. Life Ins. Co. v.
Hilton-Green, 241 U.S. 613, 621 (1916);Union Bankers Ins. Co. v.
Shelton, 889 S.W.2d 278, 282 (Tex. 1994); Hollinger v. Mut. Ben. Life
Ins. Co., 560 P.2d 824, 827 (Colo. 1977); 43 AM. JUR. 2D Insurance §
1011 (2000).
Roberts, agent of NWL who took decedent’s and plaintiff’s applications
for life insurance and filled out their applications, testified before this
court that he asked decedent whether he had any diseases or had been
hospitalized in the five years preceding application. Roberts also
testified that while he did not originally recall whether it was decedent or
plaintiff who told him about having diabetes at that time, after reviewing
the application it was his testimony that only the plaintiff admitted to
having diabetes. This testimony is certainly more compelling than
plaintiff’s counsel’s personal intimation while cross-examining Roberts
that the latter had at a later date admitted knowledge of decedent’s
diabetes, a conversation Roberts did not recall. A review of the
insurance application form itself shows that a box is checked indicating a
history of illness, and in the “Details” section it is revealed that plaintiff
had diabetes. Roberts’ explanation of how the “Details” section would
necessarily include any indication of decedent’s condition, if mentioned,
is obviously accurate and, accordingly, the form itself comports with
Roberts’ testimony. Additionally, when plaintiff’s own insurance was
rejected because of her diabetes, neither she nor decedent made any
mention of the latter’s diabetes to Roberts.
The insurance application itself was signed by decedent, and while the
application clearly indicates that plaintiff suffered from diabetes it
conspicuously makes no mention of decedent’s condition. From this
signed answer to the application’s inquiries concerning health, we can
conclude that decedent made the representation to NWL at the time of
application that he did not knowingly suffer from any disease or illness
at the time of application, and had not suffered from such for five years
preceding application. See, e.g., Phoenix Mut. Life Ins. Co. v. Raddin,
120 U.S. 183, 189-90 (1886); Prudential Ins. Co. v. Barden, 424 F.2d
1006, 1010 (4th Cir. 1970); 43 AM. JUR. 2D Insurance § 1008 (2000)
(where an answer of the applicant to a direct question purports to be a
complete answer to the question, any substantial omission in the answer
avoids a policy issued on the faith of the application). The signed
insurance application indicating that only the plaintiff had diabetes, as
well as the later rejection of plaintiff’s, but not decedent’s, insurance

application because of her diabetes, clearly contradict plaintiff’s
unconvincing suggestion that the decedent told Roberts about his
diabetes. No facts support this claim; in fact they all run counter to this
testimony.
[2] As evidence of decedent’s knowing affliction with diabetes, NWL
has provided evidence that the decedent was treated at the LBJ Medical
Tropical Center during the time period relevant to the purposes of the
insurance application. The testimony authenticating and commenting on
the decedent’s medical records was convincing, as were the records
themselves. It is clear that the decedent was knowingly afflicted with
diabetes during the relevant time period, the five years preceding
application for insurance. It is also clear from the extensive medical
treatments decedent underwent that he was fully aware of his condition
at the time of application. Decedent’s representation of good health was,
then, a misrepresentation.
[3-4] An untrue statement in regard to a matter materially affecting the
health of an applicant for life insurance, made by one who knows the
statement is not true, allows the insurer to avoid the policy. See 43 AM.
JUR. 2D Insurance § 1056 (2000) (the rule is “unanimous”). If a
misrepresentation causes the insurer to assume a risk it otherwise would
not have taken, or would not have taken at the rate of premium charged,
there is a legal ground for avoidance. See Bagwell v. Canal Ins. Co., 663
F.2d 710, 711 (6th Cir. 1981); Allstate Ins. Co. v. Winnemore, 413 F.2d
858, 861-62 (5th Cir. 1969); 43 AM. JUR. 2D Insurance § 1015 (2000).
The testimony presented at trial, and logic, both show that the insured
risk would change with knowledge of an applicant’s diabetes. An
altered risk would alter the chances of approval of the application, and
certainly affect the premium rate if the application were granted.
Accordingly, decedent’s misrepresentation of his medical condition was
a material misrepresentation, and justifies NWL’s avoiding of the policy.
As far as reliance is concerned, it is quite clear from the testimony that
NWL relies upon the representations concerning medical condition
contained within their potential client’s applications. If no conditions are
indicated on the application, and the applicant signs the form, the
company relies upon the applicant’s representation of good health and
issues the policy accordingly. Because decedent represented to NWL
that he was in good health, and he knowingly was withholding
information contrary to this representation, and this misrepresentation
was material and relied upon by NWL, decedent committed a
misrepresentation rendering the policy voidable by NWL, and NWL
were thus justified in voiding the policy and denying plaintiff’s claim.

2. Article 21.55 of the Texas Insurance Code
Plaintiff points to Article 21.55 of the Texas Insurance Code and its
requirement that insurers accept or reject all claims within 15 business
days of receiving all necessary items, statements, and forms required.
We conclude that the Texas law does not apply to the situation at hand.
There currently are two major approaches to conflict of laws in contract
cases: the “significant relationship” rule, promulgated in the Restatement
(Second) of Conflict of Laws, and the more traditional conflict-of-laws
rules focusing on place of contracting and place of performance. See,
e.g., 16 AM. JUR. 2D Conflict of Laws § 86 (1998).
[4] Under the significant relationship rule, the rights and duties of the
parties are determined by the local law of the jurisdiction that has the
most significant relationship to the transaction and the parties. Id.;
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188(1). In the case at
hand, the contract was applied for and paid for in American Samoa. The
contract claim was made in American Samoa. The insurer’s agent is
permanently located in American Samoa, as was the insured. The
insured’s health was a central issue in this case, and the insured was
physically located, and his health was assessed, in American Samoa.
The only relationship this case had to Texas was the location of insurer’s
headquarters. While the application was assessed at those headquarters,
the decedent’s misrepresentation, a central issue to this case, was made
in American Samoa.
Under the more traditional place of contract and place of performance
standards, the case for applying Territorial law is even stronger. As
discussed, the contract was initiated, signed, and enforceable in
American Samoa. The claim originated in American Samoa, and plaintiff
sought to collect the payout of the claim in American Samoa. NWL was
to insure Sipu’s life, and Sipu lived in American Samoa, not Texas. The
place of contract and place of performance was American Samoa.
American Samoa law controls the rights and duties of the parties.
NWL argued that Texas law does not apply and, even if it did, until the
medical records in question were produced, the 15 days cannot begin to
toll. The Texas Insurance Code itself shores up NWL’s argument, as §
21.55, Sec. 2(a) provides that investigation and acknowledgement of the
claim must begin within the 15 days, it is not a requirement for payment
or denial within that period of time. NWL produced extensive evidence
that it was actively engaged in attempting to obtain the records necessary
to assess plaintiff’s claim, evidence which included correspondence with
plaintiff’s counsel, where plaintiff’s counsel first appeared to be assisting
in obtaining the documents and later claimed they were destroyed.

Decedent’s death was well within the period of contestability in which
the NWL could contractually request medical information before paying
a claim. Even if we found that Article 21.55 of the Texas Insurance
Code applied, we would be compelled to conclude that NWL was not in
violation of Texas law because of NWL’s diligent efforts to obtain
relevant information—clearly behavior antithetical to the sort of abuse
that Texas law was intended to prevent.
For reasons given, judgment will enter for defendant NWL.
It is so ordered.